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Snyder recommends state contribute $350 million to help settle Detroit bankruptcy

Gov. Rick Snyder recommended Wednesday that the state contribute $350 million over 20 years to a settlement offer to help resolve Detroit's bankruptcy.

"This is a settlement," Snyder said. "This is not a bailout. I want to be very, very clear about that."

The money, which would require legislative approval, would not pay off the banks, other creditors or the city's debts, he said. It is meant to minimize the harm to the city's retirees and to protect assets.

"This is about getting Detroit to be stable, to grow again, to give good services to its citizens, to help people in all parts of Detroit," Snyder said.

But the state's investment should come with conditions, Snyder said.

Some of those conditions include that the investment come only if there is a settlement, that the resources go to the retirees - especially lower-income retirees - and that there be independent fiduciary management of the pension resources, Snyder said.

The offer will not make retirees whole, but would reduce the burdens they would face without the state's investment, which will be combined with money coming from the foundation community.

"There will be cuts," Snyder said.

Snyder said he was impressed with the foundation community, both in Michigan and nationally, that have come together to provide resources for the city, with a combined offer of at least $330 million.

"It's unprecedented to find foundations looking to use their resources to solve a situation like this," Snyder said. "I was very much encouraged by their actions."

The amount he is recommending the state put forward is a "significant commitment of resources," he said.

One resource the governor is recommending be used is the state's tobacco settlement money.

The funds could be delivered on a periodic payment basis, he said, or the state could offer a bond that would be securitized with the tobacco settlement money.

The state received $256 million in fiscal year 2013 from the tobacco settlement, and this fiscal year will receive $253.5 million. In fiscal year 2015, Michigan will receive $250.9 million.

A large portion of the tobacco money each year is already spoken for; it is funneled into the 21st Century Jobs Trust Fund, securitization payments, and credits to manufacturers, according to Kurt Weiss, spokesman for the Department of Technology, Management and Budget.

When those items are factored out, the state has $94.9 million in net revenue from the settlement funds this fiscal year and will have $92.9 million next year.

Michigan started receiving money from the tobacco settlement in 2000 and it will go on in perpetuity, Weiss said.

At Wednesday's announcement, Snyder was flanked by Senate Majority Leader Randy Richardville, R-Monroe, and House Speaker Jase Bolger, R-Marshall, who said passage of such a large investment for Detroit would not be easy to have approved by the Legislature, but was something they felt was the right thing to do.

"There is anger in Detroit, and there is angst outstate," Bolger said. "But I won't cut off taxpayers' nose, to spite Detroit's face, nor will I ask the state's taxpayers to make a bad investment."

Richardville said the Senate will consider this over the next few weeks, and whatever final proposal is brought forward, his members want to make sure Detroit does not end up in a similar situation a few years down the road.

"All we have agreed to is to take a hard look at it, vet it publicly, and make sure we are very thorough," Richardville said.

Bolger said he is dedicated to working on this and believes the offer is right, not just for the pensioners from Detroit but for the rest of the state.

Michael LaFaive, director of fiscal policy for the Mackinac Center for Public Policy, opposes such involvement by the state. Detroit's issues, he argues, were caused by the city's leadership and citizens in the rest of the state should not have to pay to fix.

"It's still state money," LaFaive said. "If you take that money and redirect that money to Detroit, we have less to spend it on statewide issues like improving the roads or thwarting tobacco usage by teenagers."

LaFaive said the city for years has been given preferential treatment by the state in that it receives a large chunk of the state's revenue-sharing dollars each year. There also are Detroit-only policies and laws, like the city's utility tax, he said, yet the city still flipped into bankruptcy.

"Detroit has fouled its own nest," he said. "At this point, you'd only be rewarding bad behavior."

Snyder reiterated throughout the announcement that this was not a bailout -- that a bailout would be contributing money to repaying debt without getting anything in return.

"This is actually to benefit people in our state," Snyder said.

Rep. Thomas Stallworth III, D-Detroit, who also serves as chairman of the Detroit caucus, attended the news conference along with several other House Democrats from Detroit and said afterward that this is a good start.

He said the key will be for the unions and other involved in the bankruptcy to factor in what this state investment will do to the level of cuts retirees are facing to their pensions.

"I think with the nonprofit community, the governor's office, leadership in both houses are committed to a settlement rather than go through a full blown bankruptcy, I think it's a positive step," he said.

While several Democrats were in attendance, their leadership was not; instead the two legislative leaders issued statements afterward.

Senate Minority Leader Gretchen Whitmer, D-East Lansing, said she was encouraged by the discussions.

"As leaders of Michigan, it is our responsibility to ensure we are doing everything we can to help our state's largest city and those who dedicated their lives to serving it. We owe that to the city's retirees and they should expect nothing less from us," she said in a statement.

House Minority Leader Tim Greimel, D-Auburn Hills, said in his statement he was also encouraged by the willingness of the governor and others to have discussions about Detroit. He said, though, that he does not have enough information to agree to the governor's request to use state resources.

"This is a complicated financial matter which will impact not only retirees and city residents, but the entire state and future generations. We owe it to all parties as we continue this process to practice the appropriate level of due diligence and we look forward to continuing discussions," he said.

Detroit Emergency Manager Kevyn Orr said in a statement after Snyder's announcement that the level of proposed investment would go far to achieve a timely and positive resolution.

"With today's announcement by the governor and legislative leaders, we now have an unprecedented commitment of public and private resources to help the city of Detroit fulfill its commitments to retirees and preserve one if its cultural jewels, the Detroit Institute of Arts," Orr said. "A mutually agreed resolution to outstanding bankruptcy issues is the best way to help the city restore basic and public safety services to its 700,000 residents. It is now time for the remaining parties to set aside the bargaining rhetoric and step forward and join this settlement to help this great city regain its footing and become once again an attractive place to live, work and invest."

Detroit Regional Chamber President and CEO Sandy Baruah also offered words of support for the governor's proposal.

"From Day One, Governor Snyder has understood that Detroit is critical to Michigan's re-invention. He has invested tremendous time, energy and political capital in working to put the city on the path to a brighter future," Baruah said in a statement. "While full details are yet to be ironed out, the Detroit Regional Chamber is encouraged that the Governor and legislative leaders have worked in a bipartisan fashion and taken the first steps to better protect workers' pensions and the region's assets at the DIA throughout the difficult bankruptcy process."